High Frequency Trading (HFT)

High Frequency Trading (HFT) is the practice of intercepting a stock market trade and manipulating the share price to make a profit before an investor can react. Lewis uses the fictitious “Scalpers Inc.” to illustrate the phenomenon. Every time an investor wants to buy 1,000 shares from company X, Scalpers Inc. is immediately informed and buys 1,000 shares. Without taking the risk of owning the stock, Scalpers Inc. sells the 1,000 shares to the initially interested investor at a higher price. HFT preys on the slow speed of investors. If trades are conducted in multiple exchanges for a given stock, high-frequency traders pick up the faster signals and manipulate the slower ones. HFT is also the reason Wall Street companies scramble to find the latest equipment and fastest routes to stock exchanges. Value is measured in microseconds. A computer algorithm reacts, not a human. Even though HFT...